Harsher times come to Expatland

By: Helen Burggraf | 20 Jun 2017

The late 1980s and 1990s saw a new phase of corporate globalisation and consequently, the beginning of a golden era for Westerners – especially those from the US, the UK and other English-speaking and developed countries who were willing to live the pampered life of an expatriate.

But even before Brexit, and before Donald Trump announced, while on the campaign trail, that he planned to “make America great again”, in part by making the US less welcoming to foreigners, expat Yanks and others had begun finding the formerly gold-paved avenues of Expatland were becoming increasingly less welcoming.

Throughout history, people arriving from other lands have traditionally been regarded with mistrust and even outright resentment by the local inhabitants, depending on the circumstances which led them to be living in whichever country they happened to have ended up that wasn’t the one they were from.

Nevertheless, beginning towards the end of the last century, a combination of factors, mostly having to do with technology, including computerisation, combined with the emergence of a new middle class in many formerly poor countries to spark a new era of globalisation.

At the same time, a trend that began decades earlier, for manufacturing operations to be moved to low-wage countries, continued, and with it, the need for expats to oversee the building and running of the factories.

The result was that millions of expatriate bankers, corporate executives, teachers, construction industry specialists, investment experts, medical professionals and others were being posted – or relocating on their own accord – to far-flung countries across Asia, Europe, Africa, the Caribbean and Central and South America by the early years of the new century.

Now, though, that Golden Age appears to be slowing, in some places dramatically – and as a result, financial advisers who specialise in looking after expatriate clients are increasingly having to help them adjust to the new, typically less infantalising reality.

This is perhaps nowhere more obvious than the Gulf, where the plunge in the global oil price a few years ago has prompted a number of the countries to consider ways of making some money from their guest workers.

Or else, in the case of introducing compulsory health insurance, making them pay for services they might have previously enjoyed for free.

In Kuwait, for example, in January of this year, lawmakers approved controversial plans to increase by as much as 500% the amount that expatriates there – who currently account for more than two-thirds of the population – pay for their healthcare, while leaving the rate paid by Kuwaitis untouched. Kuwait’s Parliament has also required expats on visitors’ visas to take out health insurance.

This followed a period, beginning in around 2013, when the Kuwaiti government barred foreigners from some of its public hospitals, and otherwise sought to limit foreign patient access to the same public healthcare as locals received to emergency situations.

(The focus, though, wasn’t on expat bankers as much as on low-paid workers from countries like India and Bangladesh, according to press reports at the time.)

Nevertheless, as reported here last year, Kuwait’s new measures aimed at getting its expats to pay more for their healthcare is in line with a global trend in the direction of compulsory health insurance for non-locals, with the result that there are already a number of countries that won’t let anyone in who can’t prove they’ve got a health insurance policy in place.

As International Investment has been reporting for months, Dubai is currently in the process of rolling out a compulsory health insurance scheme, which was due to take effect on 1 July, but the enforcement date was pushed back, at almost the last minute, until the end of this year.

Expat remittances, expat levies,anti-foreigner hiring policies

Compulsory health insurance and reduced and non-existent expat packages are, though, just part of the changing environment in Expatland.

A number of Gulf countries – again, in an effort to find new sources of income now that oil revenues aren’t what they had been – have sought to introduce taxes on money transfers out of the country by expatriates – a practice the International Monetary Fund was prompted to warn against last December.

There’s also been a move even in some developed countries to make it more difficult to hire foreign workers. In April, politicians in both the US and Australia announced plans to tighten up on skilled worker visas; Australian prime minister Malcolm Turnbull also said the test for becoming an Australian citizen would be made tougher.

One of the most aggressively anti-foreign of the Gulf countries has been Saudi Arabia, the world’s No. 1 oil exporter, and one of the countries that has been most actively working to overhaul its economy in such a way as to reduce its dependence on both oil revenues and expatriates.

Saudi’s anti-foreigner campaign is actually a by-product of a much larger, wide-ranging economic plan, called Vision 2030, that was unveiled last year by the kingdom’s 31-year-old deputy crown prince, Mohammed bin Salman. The plan aims to remake Saudi Arabia’s one-product economy into a diversified one over the course of the next 13 years – and in the process, get its under-employed locals into work.

Though barely a year old, Vision 2030 has already begun taking its toll on foreigners. In addition to announcing plans to introduce a monthly so-called “expat levy”, to take effect on 1 July, the Saudi government has declared that Saudi employers should give priority, when hiring, to Saudi nationals.

Businesses are supposed to hire foreigners only if no Saudi has applied for the role, or had the required qualifications for the position.

In April, the Saudi labour minister made a point of mentioning shopping mall jobs in particular, in what media observers said was a clear effort to see that young Saudis would be able to enter the workforce, which shopping mall jobs are seen as enabling them to do.

‘Idiosyncrasies’

Bob Parker, chief executive of the Dubai-based Holborn Group, an expat-focused advisory firm, stresses that it’s wrong to generalise about the Gulf states, each of which has “their own idiosyncrasies” – Bahrain, for example, allows 100% foreign company ownership, hardly an expat-unfriendly policy – and that expat workers will be needed in the region, no matter what anyone says, “for many many years to come”.

“Yes, the old all-in expat contract has largely disappeared, so out of your tax-free salary [expats living in Dubai] now need to pay school fees, and live in one of the most expensive cities on the planet,” Parker, who arrived in Dubai in 1998, adds.

“Dubai has gone from being a get-rich-quick place to being a lifestyle place, where you enjoy brunches on Fridays, all-year-round sunshine and a very pleasant lifestyle.”

Mike Coady, chief commercial officer for Guardian Wealth Management, another well-established Dubai-based advisory business, also sees the changes in the way expats are remunerated and otherwise treated as more of an evolution than some are characterising it, and says his company is adopting to the new expat landscape by, for example, introducing a corporate services business.

Fewer ‘traditional’ expats in Asia

Meanwhile, it’s not just in the Gulf that expatriates are finding times a wee bit harder, at least, than in the recent past. As an article in the Wall Street Journal noted in 2015, the profile of the “traditional” expat in Asia “is changing significantly, especially in the more developed economies of Singapore, Hong Kong and China”.

In these parts of Asia, “only around 30% to 40% of the expat population fits [the traditional Western expat profile] now,” the WSJ article added, quoting Lee Quane, the Hong Kong based regional director of ECA International, a company that helps corporations manage expat assignments.

The trend started “soon after the 2007 global financial crisis, as companies, forced to cut costs, began reducing expat packages,” the article went on to note.

At the same time, Western-educated locals are returning to take up jobs in Asian companies once held by expats, many of them “boasting better cultural fluency” than the foreigners they are replacing, according to the paper.

In March of this year, the same publication ran a major story headlined “Whatever happened to Free Trade: globalization in retreat”, which found that the “wave of trade and finance” that swept the global economy out of the depths of World War II, “lifting hundreds of millions out of poverty in developing countries and providing rich countries with cheaper goods, lucrative investments and hopes for a more peaceful planet” was “now receding”.

It may not be as easy to hire foreign workers in a number of jurisdictions going forward, as several more countries – including the US and Australia – have announced their intentions to tighten up on skilled worker visas.

Australian prime minister Malcolm Turnbull made his announcement of plans to abolish that country’s so-called “457 skilled visa programme”, and to replace it with a temporary visa, with new requirements for temporary foreign workers, on 18 April, in a video posting on his Facebook page.

At the same time he also announced a new “training fund” that would help give Australians the skills that employers are currently relying on foreign workers to provide. Details of this fund weren’t immediately revealed.

A few days later, Turnbull detailed plans to make it more difficult for foreigners to obtain Australian citizenship, explaining, this time on his official website , that a new four-year probation period would be added to the requirements citizenship applicants needed to meet, along with a new English language proficiency standard, and proof of the applicant’s acceptance of “Australian values”.

On the other side of the planet, hours later on the same day that Turnbull unveiled his plans for the 457 skilled visas, US president Donald Trump ordered a review America’s own H-1B skilled worker visa programme. The H-1B programme is extensively used by the US tech industry, in a way that the White House has said is pricing skilled US workers out of their own market. Some 85,000 are said to enter the US every year under the H-1B visa programme.

The review was seen as part of the president’s effort to make good on campaign promises to implement a more “Buy American/Hire American” philosophy.

Also in April, New Zealand’s immigration minister, Michael Woodhouse, announced his government’s plans to make changes to the way temporary as well as permanent immigrants are accepted into New Zealand.

“Companies and countries are scrambling to adjust to a strange new world created by a decade of economic retrenchment and an upswing in populism,” the WSJ article noted.

It quoted Larry Fink, the chief executive of the US investment giant BlackRock, in a February memo to employees, outlining a new corporate strategy: “We need to be German in Germany, Japanese in Japan, and Mexican in Mexico.”

On Monday, a Reuters story described how a “flood” of Mainland Chinese bankers is displacing expatriate bankers in Hong Kong, “filling the elite financial ranks…while a series of lay-offs at Western banks has led to an exodus of expatriates”.

Among the knock-on effects of this trend, the article noted, has been that restaurants that cater to Western tastes, such as an Italian trattoria in the central business district, have seen a drop in their business, while restaurants specialising in provincial mainland cuisine, along with “serviced apartment companies, English learning programmes and a popular car brand among Chinese” are “doing well”.

‘Rich foreigners welcome’

Even as the traditional expatriate – clutching his two-year contract and gold-plated benefits package from his multi-national employer, as he strides purposefully through the arrivals gates – is becoming scarcer, another type of foreigner is being welcomed in many jurisdictions with open arms. That is, of course, the “investment visa”, or “citizenship by investment”, crowd.

Most experts trace the beginning of this type of immigration to a programme begun in St Kitts and Nevis in 1984. Such programmes became popular in Europe in the wake of the 2008 financial crisis, when Portugal, Spain, Greece, Cyprus and Malta launched “golden visa” schemes, to boost their tax coffers by encouraging real estate investments in particular.

A number of cash-strapped countries in the Caribbean have also set up similar programmes, which have tended to lure wealthy Chinese and Russian individuals in particular.

Canada had a long-running immigrant investor programme, which it set up in 1986 and which was credited with bringing thousands of mainland Chinese and Hong Kong Chinese immigrants to the country, but suspended it in 2012 and discontinued it for good in 2014, on grounds that it was poor value for money, and undervalued Canadian residency. At the same time it also ended a similar programme aimed at encouraging entrepreneurs to relocate to Canada.

So popular had Canada become as a destination for wealthy Chinese, as a result of this programme, that a 2013 novel about life among wealthy Singaporeans and Hong Kong residents, Crazy Rich Asians, referred to the Canadian Permanent Resident Card as being “perhaps the ultimate membership card” among upper-crust Chinese Hong Kongers, owing to its potential use as a “safe haven in case the powers that be in Beijing ever pulled a Tiananmen again”.

The programme was said to have contributed to a rise in house-prices in certain Canadian cities, notably Vancouver, which last year introduced a 15% tax on home purchases by foreigners in an effort to bring house prices under control.

‘Brexodus’

With respect to the traditional expatriate and his or her traditional, gold-plated expat package, meanwhile, some say predictions of an end in sight may be premature – at least with respect to British citizens and the European Union.

Since the UK’s vote to leave the EU last year, those in the business of “citizenship planning” have reported a surge in inquiries from British citizens who are said to be desperate to maintain a foothold in the EU post-Brexit, and concerned that negotiations over the next two years won’t be enough to guarantee this.

Brexit is also prompting banks and similar institutions to announce plans to move large numbers of their staff to EU countries, increasing the expat populations in such non-British European financial centres as Dublin, Luxembourg and Frankfurt.

Last month, for example, JP Morgan Chase, the American financial group, said it would move “hundreds” of its London staff to these three cities, in which it already has existing operations.

This story originally appeared in the June issue of International Investment magazine.

Helen Burggraf is Chief Correspondent for International Investment. She is a US-trained journalist who has worked in Rome, New York City and London, covering among other things the fashion and retailing industries, the global drinking water and water-treatment sector, private equity, and most recently, the international cross-border financial services/advice industry.